Panel data models with grouped factor structure under unknown group membership

Jushan Bai and Tomohiro Ando

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies panel data models with unobserved group factor structures. The group membership of each unit and the number of groups are left unspecified. The number of explanatory variables can be large. We estimate the model by minimizing the sum of least squared errors with a shrinkage penalty. The regressions coefficients can be homogeneous or group specific. The consistency and asymptotic normality of the estimator are established. We also introduce new $C_p$-type criteria for selecting the number of groups, the numbers of group-specific common factors and relevant regressors. Monte Carlo results show that the proposed method works well. We apply the method to the study of US mutual fund returns under homogeneous regression coefficients, and the China mainland stock market under group-specific regression coefficients.

Keywords: Clustering; penalized method; lasso; SCAD; serial and cross-sectional error correlations; factor structure (search for similar items in EconPapers)
JEL-codes: C23 C52 (search for similar items in EconPapers)
Date: 2013-12-16
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Panel Data Models with Grouped Factor Structure Under Unknown Group Membership (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52782

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